Hormuz closure causes cascading effects across energy markets

• Brent up 2%, WTI gains 2.6%
• Hormuz blockage may force output cuts
• Gold up 1%, disruptions hit gas

Crude oil prices climbed in early trade on Thursday as the impact of the Iran conflict rippled far and wide across international energy markets.  

Brent crude rose 2 percent to $83.07 per barrel by 01:41 GMT, while US West Texas Intermediate crude gained 2.6 percent to $76.60.

With Iran maintaining its blockade on shipping through the Strait of Hormuz, Gulf producers’ inability to transit oil is putting pressure on their storage capacity and may force them to cut output. 

Iraq slowed production at its Rumaila field and the West Qurna-2 project on Tuesday. Saudi Arabia may face similar constraints if blockages continue, analysts said.

Indian state-owned refiner Mangalore Refinery and Petrochemicals Limited said on Wednesday it would stop all planned gasoline exports for March and April as it is unable to source crude.

Several suppliers of fuel to ships based in the Emirati port of Fujairah also invoked force majeure, according to Argus Media. Force majeure allows commodity companies to suspend or cancel contracts when extraordinary events such as war, natural disasters or blockades make it impossible to fulfil them.

“Market participants fear a repeat of the ‘tanker war’ in the 1980s, when the Iran-Iraq War jeopardised the security of Western commercial vessels in the Strait of Hormuz,” said Sasha Foss, an analyst at CSC Commodities in London. “So far, six tankers have been struck in the Gulf since the war began on February 28.”

Brent prices were volatile, fluctuating within a 5 percent range.

“It’s difficult to get effective oil price discovery because of the sheer volume of oil that’s being disrupted in terms of flows through the Strait of Hormuz,” said Christopher Haines, head of oil at London’s Energy Aspects.

“Oil price volatility will probably remain extreme, because it’s so hard to price such high-risk, high-reward scenarios for traders.”

Disruptions spread to the gas market after state-run QatarEnergy declared force majeure as a result of Iranian strikes earlier this week that halted its production of liquified natural gas and some downstream products, such as urea, polymers, methanol and aluminium.

India’s largest gas importer, Petronet LNG, notified domestic customers that it would be unable to fulfil orders.

Aluminium Bahrain, or Alba, suspended some deliveries, sending the price of the material up 5 percent on the London Metal Exchange to levels not seen in four years. 

Spot gold was up 0.8 percent at $5,177.26 per ounce in early Thursday trade. 

US gold futures for April delivery rose 1 percent to $5,186.40.

US financial markets closed Wednesday in positive territory, with the S&P rising 0.8 percent, the Nasdaq adding 1.3 percent and the Dow Jones up 0.5 percent. 

In the UAE, stocks took a beating after markets reopened for the first time since the conflict began on Saturday. Dubai’s index was down 4.7 percent, a two-month low, while Abu Dhabi’s benchmark dropped 1.9 percent.

Saudi Arabia’s Tadawul All-Shares Index closed 1.6 percent up, the second straight day of gains. 

More news on the Iran conflict:

• UAE spent $1bn a day downing missiles and drones, analysts say
• Retailers steel themselves for supply disruption
• Global markets price stagflation risk from a protracted war